Spain has asked the European Union for up to 100 billion ($125 billion) to provide a capital buffer for the nation's ailing banks, the Eurogroup said Saturday.

"The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favorably to such a request," the group said in a statement.

Without specifying the amount sought, Spain's economy minister, Luis de Guindos, announced the request at a news conference in Madrid. de Guindos said that the amount sought would be enough to guarantee the safety of the banks and signify credibility to the capital markets.

Granny don't see how its gonna do a whole lotta good...Rescuing Spain: To bail out or not bail out?11 June 2012 - The word 'bailout' conjures up images of EU technocrats dictating harsh economic austerity measures

Just under a week ago, Spain's finance minister Cristobal Montoro said that "the men in black" would not be coming to Spain. He meant that Spain would not seek a bailout from the eurozone, and his use of the phrase "men in black" was a reference to officials from the so-called Troika of the European Union, European Central Bank and International Monetary Fund. Of course, Spain did ask for assistance from the eurozone during an unusual conference call of eurozone finance ministers on Saturday afternoon. Ever since, the government has been stressing that Spain's rescue deal is very different to those of Greece, Portugal and Ireland.

Words matter

It says it has been handed a "line of credit" or a "favourable loan". But many of the Spanish papers use the word "rescate" which translates as "rescue", or in this context "bailout". In a press conference on Sunday lunchtime, the Spanish Prime Minister, Mariano Rajoy, said he did not want to get drawn into "an argument over words". To a certain extent, the prime minister has a point. Whether we call the 100bn euros (£80bn) that the eurozone has put at Spain's disposal a credit line or a bailout is, to a certain extent, a false debate. Both terms are technically correct.

However, words reflect the politics - which are inextricably linked to Spain's decision. Spain does not want the same loss of sovereignty as those other three eurozone nations that have already been bailed out. The language used therefore reflects the degree to which Spanish policy will be guided, scrutinised or even forced by officials from those three international bodies - "the men in black'"

'Watching closely'

On Monday, European Commission Vice-President, Joaquin Almunia, said that "whomever gives money, never gives it for free". What he meant was that Spain's deal will carry conditions. What is clear is that, as a result of this deal, the Spanish government will have to make further reforms of its financial sector. In return for eurozone money, troubled Spanish banks will have to make concessions. In this area of Spanish policy, the Troika, or at least the EU, will have a direct say. The Spanish government insists that other areas of economic policy will not be affected.

Spain and Italy borrowing costs rise12 June 2012 - Spain and Italy's borrowing costs rose on Tuesday as the initial optimism that greeted the Spanish bank bailout continued to evaporate.

Spain's benchmark 10-year bond yields hit 6.65%, nearing the six-month highs seen in May. Italy's 10-year bond yield rose to 6.19%, not seen since January. The interest rates are seen as unsustainable in the long run for two countries weighed down by huge debts. European bank shares fell in early trading, but began recovering later. Although Europe's main bourses opened slightly higher, Barclays initially fell 3.8%, while RBS and Lloyds were about 2% lower. In Spain, shares in the biggest lenders Santander and BBVA fell 1.3% and 0.9% respectively following a downgrade from ratings agency Fitch.

However, by mid-morning most of the major banks were in positive territory. Despite Asian markets closing down, the FTSE 100, Germany's Dax and France's Cac all began the day up 0.2%. Spain's Ibex market opened down 0.2%. In Asia, the Nikkei 225 index fell 1% while the Hang Seng index dropped 0.6%. After an initial relief rally following the 100bn-euro ($125bn; £80bn) bailout of Spanish banks over the weekend, analysts said the markets had returned to a mood of caution. "This is a realisation that Spain, while providing money for its banks, is going to add to its debt-to-GDP ratio," said Paul Zemsky, head of asset allocation at ING Investment Management. "They're borrowing more money, not doing anything about growth," he added. "Today we're not worried about Spain's banking system falling off a cliff, but other than that, nothing's changed."

Rather than soothe fears in the financial markets, the bailout of Spain's banks revealed new doubts over its impact on the country's overall debt level, where the rescue funds would come from, and whether the money would be enough. It has still to be decided whether Spain's bailout money will come from existing European Financial Stability Facility, or a new fund, the European Stability Mechanism (ESM). Under the terms of the ESM, loans will have priority for repayment over private sector investors. This has worried investors buying new Spanish bonds.

On Tuesday, Greece raised about 1.62bn euros in a sale of six-month treasury bills, but had to pay an interest rate of 4.73%, up from 4.69% at a previous sale on 8 May. Worries about the fragility of some eurozone economies were not helped by comments from Austria's finance minister Maria Fekter, who on Monday refused to rule out that Italy may need EU rescue money in the coming months. Although, on Tuesday, she emphasised that there were no signs that Rome would need bailout aid, Italy's prime minister Mario Monti called her remarks "completely inappropriate".

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